Understanding Default

Default Has Several Consequences

Default is a very serious situation and you need to be aware of the consequences.

Get Help with Default

If your federal student loan(s) is in default, you probably realize that it is a serious situation. However, there may be options available to you. ECMC can help you understand which alternatives fit your personal situation.

• Pay your loan(s) in full. Paying your outstanding federal student loan(s) in full has advantages.
• Rehabilitate your loan(s) to get out of default. Successfully rehabilitating your federal student loan(s) will get your loan(s) out of default and restore your loan(s) to its pre-default state.
• Consolidate your loans. Consolidation gets your loans out of default by refinancing them into one new loan. Consolidating your loans may also lower your monthly payments.
• Set up a default repayment plan. A repayment plan won't get your loan(s) out of default, but it may suspend some of the consequences of default—like having your wages garnished and your tax refunds seized.
• Determine eligibility for loan cancellation. Federal student loans have built-in protection against things like fraud, school closings, permanent disability and death.

• What You Can Do Now

  If your loan(s) is in default, and ECMC holds your loan(s), contact us at 855-810-4922. We will help you explore your options to get out of default.

  If you don't know who your loan holder(s) is, go to the Federal Student Aid (FSA) website, which is the central database for all federal student loan information.

• What Happens When You Default?

  When a federal student loan goes into default, the loan fundamentally changes. The loan is not eligible for a forbearance or deferment. Standard benefits, like extended payment options and interest subsidies, are no longer available.

  Some of the consequences of defaulting on a federal student loan include:

  • Losing benefits like deferment, forbearance and some flexible, income-driven payment options
  • Initiation of the administrative wage garnishment process
  • Certification for the Treasury Offset Program, in which the government may seize your tax refund or other government payments
  • A defaulted federal student loan balance may increase due to the addition of federally mandated collection costs
  • The default status may be reported to the national consumer reporting agencies (aka credit bureaus)
  • A defaulted loan may be placed with a third-party collection agency

• Losing Benefits Like Deferment, Forbearance and Some Flexible, Income-Driven Payment Options

  When a federal student loan goes into default, many terms of the student loan change.

  • Deferment and forbearance are no longer available
  • Options for flexible, income-driven repayment plans may change
  • Subsidized interest benefits stop
  • Additional Title IV federal financial aid is no longer available

• Initiation of the Administrative Wage Garnishment Process

  If your federal student loan(s) defaults, federal law allows the loan holder(s) to initiate the administrative wage garnishment process, which means up to 15% of your disposable income every month may be subject to be withheld to repay your federal student loan(s).

• The Government May Seize Your Tax Refund or Other Government Payments

  Federal student loan funds are ultimately taxpayer dollars and the government protects its investment. If you don't pay your defaulted loan(s), the loan(s) may be certified for offset by the U.S. Department of the Treasury. The government can "offset" money it owes you and apply that money to your outstanding balance by seizing:

  • Your federal and state income tax refunds
  • Part of your Social Security (SSA) payments
  • Other federal payments

• A Defaulted Federal Student Loan Balance May Increase Due to the Addition of Federally Mandated Collection Costs

  Periodically accrued unpaid interest was added to the principal balance of your defaulted federal student loan(s). That is, the interest was capitalized. Your loan balance in default is therefore higher and can continue to grow:

  • Interest continues to accrue
  • Federally mandated collection costs may be added to your balance

• The Defaulted Status May Be Reported to the National Consumer Reporting Agencies (aka Credit Bureaus)

  As your loan holder, ECMC reports a defaulted student loan(s) to the national consumer reporting agencies. A reported default(s) may stay on your credit report for up to seven years.

• Your Loan(s) Can Be Placed with a Third-Party Collection Agency

  Once your federal student loan(s) goes into default, ECMC may place your loan(s) with a third-party collection agency.